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<p>Zoetis ranks 93 on Fortune 100 Best Companies to Work For – Europe 2026 list.</p>

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With a combined revenue of $21 trillion and $2.1 trillion in profits, the 2026 Fortune 500 is the definitive list of America's largest companies.

Fortune 500

Almost $20 trillion in revenue—and a record-breaking $1.87 trillion in profits. Introducing the 2025 Fortune 500, the definitive list of the biggest companies in America.

Industries included in the sector are insurance and managed care, medical products and facilities, pharmacy services, and pharmaceutical companies.

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The Fortune 500, in its 70th year in 2024, ranks the biggest U.S. companies by revenue.

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The business of veterinary care technology is both a lucrative and an impactful one—animal health company Zoetis brought in $7.8 billion in revenue in 2021 while developing vaccines and treatments for livestock and pets. Zoetis’s geographic footprint is as wide as its technological scope; the company oversees the production of veterinary biodevices and genetic tests from their design to manufacturing while providing services and products to over one hundred countries. In 2017, Zoetis launched its African Livestock Productivity and Health Advancement (ALPHA) Initiative with a grant from the Bill &amp; Melinda Gates Foundation; ALPHA now provides veterinary technology and training resources to veterinarians and farmers in sub-Saharan Africa. The effort addresses food insecurity by giving small farmers the resources and training to sustainably keep livestock healthy. ALPHA currently operates 16 serology labs across Uganda, Nigeria, Tanzania, and Ethiopia. So far, 11 million chickens and over 45,000 cows have been tested for diseases through these labs. Even more important is the educational element of the initiative: In all, 26,000 farmers and veterinarians have been trained in livestock care and an estimated 1.3 million people have been reached through train-the-trainer programs. That education includes “an emphasis on training women,” senior director of sustainability and innovation communications Christina Lood told <em>Fortune</em>. The Zoetis Foundation has also recently focused on empowering America’s small-business dairy farmers to utilize sustainable technology.

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This year’s Fortune 500 marks the 68th running of the list.

This year’s Fortune 500 marks the 67th running of the list.

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The drug company, which was spun off from Pfizer in 2013, bills itself as the world's leading animal health company, producing medicine and vaccinations for pets and livestock. Those businesses proved relatively pandemic-proof in 2020, as Zoetis's revenue and profit grew by 7% and 9%, respectively.

This year's Fortune 500 marks the 66th running of the list.

F500-2020-472-Zoetis

Zoetis develops and manufactures animal-health medicines and vaccines whose customers include veterinarians, pet owners, and livestock farmers.

This year's Fortune 500 marks the 65th running of the list.

This year's Fortune 500 marks the 64th running of the list.

This year's Fortune 500 marks the 63rd running of the list.

This year's Fortune 500 marks the 62nd running of the list.

This year's Fortune 500 marks the 61st running of the list. Wal-Mart claims the top spot again. See who made the list.

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Zoetis (ZTS): Company Profile, Stock Price, News, Rankings

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Welcome to the Second Quarter twenty twenty five Financial Results Conference Call and Webcast for Hosting the call today is Steve Frank, Vice President of Investor Relations for Zoetis.

The presentation materials and additional financial tables are currently posted on the Investor Relations section of zoetis dot com. The presentation slides can be managed by you, the viewer, and will not be forwarded automatically. In addition, a replay of this call will be available approximately two hours after the conclusion via dial in or on the Investor Relations section of zoetis.com. At this time, participants have been placed in a listen only mode and the floor will be open for your questions following the presentation. You.

In the interest of time, we ask that you limit yourself to one question and then queue up again if you have any follow ups. Your line will be muted when you complete your question. And when posing your question, please pick up your handset to allow for optimal sound quality. It is now my pleasure to turn the call over to your host, Steve Frank, Vice President of Investor Relations for Zoetis.

Thank you, operator. Good morning, everyone, and welcome to the Zoetis second quarter twenty twenty five earnings call. I am joined today by Kristen Peck, our Chief Executive Officer and Wetteny Joseph, our Chief Financial Officer. Before we begin, I'll remind you that the slides presented on this call are available on the Investor Relations section of our website and that our remarks today will include forward looking statements and that actual results could differ materially from those projections. For a list and description of certain factors that could cause results to differ, I refer you to the forward looking statements in today's press release and our SEC filings, including but not limited to our annual report on Form 10 ks and our reports on Form 10 Q.

Our remarks today will also include references to certain financial measures, which were not prepared in accordance with Generally Accepted Accounting Principles or U. S. GAAP. A reconciliation of these non GAAP financial measures to the most directly comparable U. S.

GAAP measures is included in the financial tables that accompany our earnings press release and the company's eight ks filing dated today, Tuesday, 08/05/2025. We also cite operational results, which exclude the impact of foreign exchange. With that, I will turn the call over to Kristin.

Thank you, Steve, and good morning, everyone. Welcome to our second quarter twenty twenty five earnings call. Thanks to the dedication of our colleagues around the world, we delivered strong broad based 8% organic operational revenue growth, a reflection of the strength of our innovation engine and the excellence of our customer focused execution. We also grew adjusted net income 10% on an organic operational basis, underscoring our focus on operational efficiency. Our International segment grew organic operational revenue 9%, demonstrating our ability to capitalize on key trends that are expanding regional markets.

The U. S. Grew 7% excluding the impact of the MFA divestiture. Companion Animal grew 8% operationally, while Livestock delivered 6% organic operational growth driven by sustained demand for our trusted market leading solutions. This quarter's performance highlights the strength of our diversified portfolio with growth across markets, species, franchises and channels and balanced contributions from price and volume, a testament to our strategy.

With organic operational revenue up 9% in the first half, we are delivering in line with our plan and are well positioned to carry that progress into the second half. Our consistent performance across economic and competitive cycles reinforces the strength of our business and animal health as one of the most compelling long term growth sectors. Key franchises collectively delivered another quarter of double digit performance, underscoring not only their continued momentum, but also the power of our innovation and the disciplined execution that drives value across the business. As you look closer at our companion animal growth drivers, it's clear that innovation is not only our core competency, it's the most powerful way we live our purpose. And what's equally clear, our key franchises have significant runway for continued durable growth.

Our franchise, for example, grew 17% operationally even after nearly two years of competition. Demand continues to rise for comprehensive triple combination protection, the fastest growing segment in the parasiticides market, where Simparica Trio is setting the standard of care, delivering 20% operational revenue growth. With new entrants, the overall category continues to expand, fueled in part by increased promotional activity that is raising awareness of the benefits of triple combination protection. Thanks to our first mover advantage, strong commercial relationships, and preferred position with key veterinary partners, these efforts are often reinforcing our leadership. Trio remains the trusted first choice for veterinarians and pet owners alike.

In this franchise, our alternative channel strategy, especially in The US, the largest market for parasiticides, remains a key source of diversification and differentiation, helping us meet customers where they are and driving stronger compliance by ensuring pet owners have convenient ongoing access to trusted products. We expect these dynamics to continue for the foreseeable future. More than ten years since launch and with over 12,000,000 dogs treated, our key dermatology franchise continues to deliver growing 11% operationally, a testament to how durable true innovation can be. This quarter's performance was fueled by particularly strong results internationally, where we're seeing increased uptake among new patients and higher compliance. What continues to set this franchise apart is its depth and versatility.

We didn't just create the derm category, we continue to expand it with complementary treatment options that address a range of needs. Apoquel chew provides added flexibility for pet owners, while Cytopoint is a convenient injectable solution for longer lasting relief. Together, these modalities help vet personalized care, improve compliance, and deliver high satisfaction, reducing the likelihood of switching and supporting durable franchise performance. Even after a decade, we see meaningful runway ahead driven by two powerful dynamics, the continued importance of compliance in chronic disease management and the opportunity to reach more than 20,000,000 doll remain under or untreated today. Our confidence is grounded in what sets us apart.

We lead through science, designing solutions that address the most persistent needs in animal health, and establishing a standard of care that's not easily surpassed. And as we shared earlier this year, we're confident not only in our market leading differentiated portfolio today, but in the portfolio of the future already taking shape. In osteoarthritis or OA pain, Librela declined seven percent operationally this quarter. We are actively advancing efforts to accelerate adoption grounded in both the scale of the opportunity and the positive patient impact we continue to see. In The US alone, twenty seven million dogs suffer from OA, yet only nine million are currently treated.

And today, we are reaching just one million of them. As with any breakthrough innovation that establishes a new standard of care, adoption rarely follows a straight line. That's why we're taking deliberate steps to develop the market, educating veterinarians and pet owners to ensure a clear understanding of the product's benefit risk profile and to the lasting confidence. In fact, more than seventy five percent of US patients, past and present, report being extremely or very satisfied with the RELIST results. Shaping a new market takes time, but we remain confident in our ability to deliver over the long term.

We see significant potential in Librela and will continue to invest in unlocking it because the need for chronic pain relief is significant, persistent, and deeply personal for our customers. It also reflects how we're thinking more broadly about sustaining growth through continued innovation, access, and differentiation. Globally, across these franchises, more patients remain unaddressed than treated. And in many cases, the opportunity to expand care exceeds the current market, particularly outside The U. S, where rising pet ownership and medicalization are fueling demand for therapies that support longer, healthier lives, including among aging COVID pets.

In livestock, demand for our portfolio remains strong with 6% organic operational revenue growth led by double digit gains internationally. Across species, this business remains an important driver, reflecting multiple years of strong execution and above market performance. Broader industry dynamics, including rising U. S. Protein consumption, continue to reinforce the long term fundamentals.

This quarter, we also advanced our pipeline with the conditional license of our avian influenza vaccine for use in lactating dairy cattle in The U. S. While the revenue impact is limited, it reflects our longer term focus, a company built on purpose and powered by innovation. Altogether, these results highlight the strength and diversity of our portfolio, driving consistent performance from multiple sources across varying market conditions. Based on our strong first half performance and what we see in the current macro environment, we are raising our full year guidance for organic operational revenue growth to 6.5% to 8%.

We are also raising our guidance for organic operational growth in adjusted net income to 5.5% to 7.5%, reflected of continued discipline in execution and cost management. Looking ahead, we are well positioned to deliver our full year commitments supported by durable industry trends and our ability to adapt and execute with focus. Our consistent performance across economic cycles and competitive dynamics reflects the fundamental strength of our business, the breadth of our portfolio, and our commitment to delivering differentiated value. That resilience is grounded in the strength of our global manufacturing and commercial capabilities, enabling us to deliver reliably, scale effectively and support our customers across geographies and market conditions. As we look to the second half of the year, our focus remains clear, execute with discipline, advance meaningful innovation, and stay deeply connected to the needs of our customers.

With a portfolio built to solve real world challenges, and a pipeline aimed at raising the standard of care, we are well positioned to lead, not just in the markets we serve today, but in shaping the future of animal health. Thank you for your continued support. And with that, I'll turn it over to Wetteny to walk through the financials. Wetteny? Thank you, Kristen, and hello, everyone. In the second quarter,

we posted $2,500,000,000 in revenue, growing 4% on a reported basis and 8% on an organic operational basis, which excludes the impact of foreign exchange and the MFA divestiture. Adjusted net income of $783,000,000 grew 10% on a reported basis and 10% on an organic operational basis. Our organic operational revenue growth was balanced, driven by 4% price and 4% volume. Our performance highlights our diverse and differentiated portfolio with strong growth across species, geographies, and channels. This broad based growth underscores our ability to compete and win across the markets in which we operate and to generate durable returns in the face of competition and in challenging macroeconomic environments.

Our companion animal portfolio posted $1,800,000,000 in revenue, going 8% operationally. Globally, on a operational basis, our Simparica franchise contributed $448,000,000, going 17%, and Key Dermatology posted $460,000,000 growing 11%. Our global Lifecycle portfolio contributed organic operational growth of 6% on $638,000,000 in revenue. Our Lifestyle business has outperformed our expectations thus far this year, growing 7% on an organic operational basis year to date compared to low single digit market market growth projections. This also marks the fifth consecutive quarter of organic operational livestock growth above 5%, signaling good momentum that we expect to continue through the remainder of the year.

Now moving on to our q two segment results. US revenue grew 4% on a reported basis and 7% on an organic operational basis. Companion animal grew 9% and livestock declined 2% on an organic operational basis. The US companion animal business was driven by the performance of our Simparica and key dermatology franchises, partially offset by a decline in sales of our OAP maps. We have seen vet clinic activity improved throughout the quarter versus the lows in February.

And as expected, our business continues to grow above the market despite increasing competition across two of our key franchises. Both our Simparica and key dermatology franchises benefited from strong alternative channel sales in the quarter. In addition to organic growth above the vet channel, we also saw tailwinds from certain retailers increasing their presence in the space. This increased presence will further expand the attractiveness of alternative channels that more and more pet owners are choosing for product fulfillment. Our Simparica franchise grew 18% in the quarter on $329,000,000 in revenue.

Despite intense competition, Simparica Trio has not experienced year over year patient share loss since competition launched almost two years ago. During this time, we have seen triple combination share in vet practices expand from 30% to 45%. And our retail channel sales, which drive significantly better compliance and stickiness, have more than doubled. And BRCA2 remains the market leader in the triple combination space and the largest product in the largest therapeutic area in animal health. Key dermatology sales were $307,000,000, going 9% with growth growth across both Apoquel and Cytopoint, with growth coming more from volume than price.

We continue to see minimal patient share impacts due to competition. We see the strongest growth in our Apoquel chewable formulation, which provides easier administration than a film coated tablet and remains differentiated from competitive entrance. Lastly, as a reminder, we saw growth headwinds from the impact of our initial applicable chewable stocking order in the prior year. This impact offsets the new retail stocking tailwinds I noted earlier. Additionally, our combined FOIA pay mass declined 12% in The US this quarter on $62,000,000 in sales.

L'Oreal declined 16% on $45,000,000 in revenue. As noted last quarter, our ramp up for L'Oreal in The US has not gone according to expectations with headwinds impacting product adoption and creating barriers for vet recommendations. As Kristen mentioned, our demand generation efforts remain focused on education to help vets and pet owners overcome perceived safety concerns with Luguela. Additionally, we are working on phase four studies to reaffirm the safety and efficacy of Luguela when compared to alternative treatments such as NSAIDs. These efforts will help our return to sustained growth and accelerate our trajectory.

We remain confident in Luguela long term. Valencia declined 3% on $17,000,000 in sales for the quarter. Organic operational declines of 2% in US livestock are primarily driven by the timing of supply of Ceftiophere. Moving on to our international segment, revenue grew 3% on a reported basis and 9% on an organic operational basis. Companion animal grew 8% operationally, and livestock grew 10% on an organic operational basis.

International companion animal growth was driven by our key dermatology and Simparica franchises. Our key dermatology franchise grew 15% operationally, posting $153,000,000 in revenue internationally with strong performance across both Apoquel and CYTOPOINT. Our growth has been largely driven by the efforts of our field force, who have been instrumental in driving high engagement with our key corporate accounts. This has continued to expand the market with new patient adoption as well as improved compliance, especially in chronic cases. We continue to see preference for our differentiated products, ApicalTrue and Cytopoint, both of which offer benefits in ease of administration and compliance compared to alternatives.

Our international Simparica franchise was 16% operationally on $119,000,000 in sales with double digit growth across both brands. Both brands continue to be among the fastest growing parasiticide brands across international markets, getting share despite growing competition. And Paracatrio grew 22% operationally on $55,000,000 in sales. Similar to what we are seeing in The US, where less than half of dogs prescribed the parasiticide by a vet are currently receiving triples, many international markets have not yet adopted triple combinations as a standard of care, with 30% of our top 10 markets doing less than $1,000,000 in trio sales this quarter. This represents a continued opportunity for market expansion for our Simparica franchise.

Simparica contributed $64,000,000 in sales, growing 12% operationally. Our growth in both brands has benefited from strong key account relationships, driving stickiness among competitors competitive conversion as well as increased utilization and expansion of the oral parasiticide market. Internationally, our OFA maps grew 4% operationally on $83,000,000 in combined revenue. International sales of Luella were $64,000,000 growing 1% on an operational basis. Despite high vet confidence in Luella in in international markets, we are seeing impacts to new patient starts from social media headwinds, particularly in English speaking markets.

We have begun echoing our US efforts internationally to address these concerns. Valencia sales were $19,000,000, growing 17% operationally in the quarter. We have seen high satisfaction and balanced growth across key markets and expansion into Latin American and Asian markets. International livestock grew 10% on an organic operational basis in the quarter with growth across all of our core species. Performance was driven by swine, partly due to tailwinds from China, which are timing related and will gradually normalize in subsequent quarters, as well as vaccine growth in Latin America.

Additionally, saw strong performance in our fish portfolio driven by high demand for our vaccines across both Norway and Chile. Poultry growth came primarily from vaccine performance in The Middle East and Asia driven by increased focus on vaccines after our MFA divestiture. Our cattle business benefited from price contributions, particularly in high inflationary markets. Now moving on to the p and l for the quarter. Adjusted gross margins of 73.7% with 200 basis points on a reported basis.

Foreign exchange had a favorable impact of 130 basis points. Excluding FX, we saw higher margin due to favorable impact of our MFA divestiture as well as benefits from price. This was partially offset by higher manufacturing costs in line with our expectations, which have been improving as we work through inventory valued at prior year standards. Adjusted operating expenses increased by 5% operationally. Growth was primarily driven by SG and A increases of 6% operationally, mainly due to the timing of advertising and promotion spend as well as higher compensation related expenses.

Operational r and d growth was 1% in the quarter with higher compensation related expenses partially offset by lower project spend primarily due to timing. Adjusted net income grew 7% operationally and 10% on an organic operational basis. Adjusted diluted EPS grew 9% operationally in the quarter and 13% on an organic operational basis. Now moving to guidance for full year 2025. Please note that guidance reflects foreign exchange rates as of late July.

Consistent with last quarter, our guidance does not include any assumed impact of future tariffs or policy changes. The impact of currently enacted and assumptions on announced tariffs on our business is slightly higher than our estimate as of our May guidance update. However, we feel we can absorb the incremental impact. For the year, we are guiding revenue between 9.45 and $9,600,000,000 and raising our organic operational growth to a range of 6.5% to 8% based on our strong first half performance. While our first half organic operational revenue growth of 9% is above our guidance range, we have highlighted all year that our guidance is reflective of headwinds from launch related competitive impacts in the second half of the year.

There's still significant uncertainty on the timing of these events. Despite these temporary headwinds, we still see significant room for long for growth long term. We have been pleased with the growth of our Simparica and acute dermatology franchises despite headwinds in pain and reiterate our expectation that these combined innovative franchises will grow double digits in 2025. This commitment, along with the strength we have seen in our livestock business, highlight the revenue diversity that is fundamental to our continued above market growth. We now expect adjusted net income to be in the range of 2.825 to $2,875,000,000, reflecting operational growth of 5.5% to 7.5 on an organic operational basis.

The increase in our expected adjusted net income is driven by improved margin expectations due primarily to lower manufacturing costs, the higher revenue outlook, and expense management, partially offset by the increased impact of tariffs. Finally, we expect adjusted diluted EPS to be in the range of $6.3 to $6.4 and reported diluted EPS to be in the range of $5.9 to $6 Consistent with prior guidance, our EPS projections are based on current share counts and do not consider the future favorable impact of our ongoing share repurchase program. The first half of the year has not been without its challenges. We have navigated tariffs on uncertain macro environment, competitive pressures, and challenges with the growth. Through all of this, we have driven cross portfolio growth above our expectations that has given us the confidence to raise our guidance.

As we progress into the back half of the year, we remain confident in our ability to meet our commitments as we have done time and again. Now I'll hand things over to the operator to open the line for your questions. Operator?

Absolutely. This time, if you'd like to ask a question, please press the star and one keys on your telephone keypad. Keep in mind, you may remove yourself from the queue at any time by pressing star and two. You. We'll take our first question from Michael Reiskin with Bank of America. Go ahead. Your line is open.

Great. Thanks for taking the question and congrats on the quarter guys. I want to start first with the Trioderm franchises at a high level. You spent a lot of time talking about competition and how you've been able to retain meaningful share, not really seeing any incremental erosion. I'm just wondering if you've had any change in your strategy in terms of how you approach things as you've seen more and more entrants in both of those markets.

Are your competitors being more aggressive on price? And you called out retail alternate channels. Is that an area you're leveraging to sort of retain your first mover advantage in those markets? And then for the follow-up, want to ask on Librela. Kristen, Wendy, you guys both emphasized the steps you're taking in terms of medical education, post launch studies, engaging with pet owners.

Just want to get a sense of your expectations on timing when we'll see the benefit for that. When do you think Librela can return to growth if you think it'll it can start growing again year over year later this year or if this is more of a 2026 benefit? Thanks.

Thanks for the question, Mike. Look, we have been very pleased with the performance across, both our key derm, as well as Simparica and particularly Simparica Trio. As you know, we've been, facing direct competition in Trio for a couple of years now, and you've seen the product just absolutely perform. So in the quarter, you saw Trio grow, 20%, 19% in The US. Overall, Simparica franchise growing 18% on the quarter.

And following last year with the first full year of their competition, we grew 25%. Look. As we've been, highlighting for some time now, triple combination space is still relatively new standard of care that we set in The US, and we continue to lead it. Trio is the leading product, across flea tick for heartworm, combination. We've been this is a market segment that grew 45% last year.

We continue to see strong growth there, and we expect to continue to see that end of the market continue to expand as consumers, move from older therapies into triple combinations. And even with, competitive entrants, we expect that to continue, to happen as more awareness will be created by those. So we're very confident in long term being able to do that. And what I would say is in terms of our growth, go to market on this, we have not changed anything. We remain very disciplined here.

And if you note, last year in particular, we highlighted and we continue to see better price realization. So we're being very targeted about how we do promotion that will drive long term growth and patient share in this space. This is why you have not seen us have any patient share loss in any quarter since, direct competition has has come on with Treel. Again, couldn't be more confident and more pleased, quite frankly, with how we're executing on that front. Similarly with Keyderm, I mean, we grew 17% last year, largely driven by volume.

Of course, we saw some price contribution there as well, and you see some price contribution this year. But QDerm grew 11% on the quarter. It's 13% on a year to date basis. We have been saying for some time now. If you look at the market that's available to us, unaddressed, either untreated or undertreated, it is bigger than the market we're treating today.

That just spells for room for expansion here. And that's that's before you even consider compliance, which you're seeing, nice tailwind from compliance, particularly as you mentioned, in alternative channels, where you see increasing compliance both for for Trio as well as, QDerm. So, again, markets are quite large. We are leaders in these markets with multiple products, and we will leverage that leadership position, continue to drive our first mover advantage, to to continue to lead and grow long term in these spaces. So I'll let Kristen go ahead and take the Librela question.

Sure. Thanks, Mike. You know, I really think by fundamentally improving the quality of life for dogs, with OA pain, you you know, Librela is making a big difference. As we mentioned, you know, over seventy five percent of US patients report being extremely or very satisfied with the product, and we are quite focused on how we accelerate the adoption of this. As you mentioned, we've been focusing a lot on medical education with vets.

We've been partnering, with key opinion leaders. We even brought in some of our top vets, from Europe who had the product for over four years, to do a tour in The US, which has been quite impactful. We're also, as we talked about before, launching a number we're doing some third party studies. They're underway right now. They should be reading out beginning in q four of this year and into next year.

We really think this will help provide even more clinical validation and support, a broader understanding of the product, and ultimately adoption. We're also engaging directly with pet owners, to educate them on the burden of osteoarthritis, and to build awareness and demand. So we remain very committed to this. We're seeing the positive impact Librela is having, and we're confident in the long term potential of this product, and we continue to be confident in the safety and efficacy.

We'll take our next question from Erin Wright with Morgan Stanley. Please go ahead. Your line is open.

Great. Thanks. So it's a little early to talk about 2026, but just in light of the evolving competitive landscape as well as the innovation you have in the pipe, I guess, how are you thinking about your ability to still achieve, you know, high single digit 68% kind of operational growth next year? And some of those just like higher level headwinds and tailwinds as we head into not only the second half, but also next year? And second question is on margins.

We're stronger in the quarter. I guess, can you speak to some of the areas that you continue to address from a cost management perspective? And how do you think about the quarterly progression from an operating margin standpoint from here, where there's some timing benefits or other dynamics at play in terms of the operating margin in the quarter? Thanks.

Thanks, Erin. I'll start and let let me build on this. I mean, I think what you've seen in the first half this year, that we keep underscoring is the broad based results that we're delivering. They're led by the innovation in our portfolio and also excellence in our execution. You know, when we talk about the diversity and durability of our portfolio, that's across markets, it's across species, our pipeline, and we really believe this positions us for above market growth, over the long term.

You know, we've also said that we expect a major market approval, every year for the next few years across our pipeline. So we remain quite confident that we are, you know, a secular grower with really strong fundamentals driving not just the industry, but importantly Zoetis with our pipeline. So, Juanena, if you wanna build on that and also address your question on margin?

No. Look. I I I appreciate the question and and certainly smiling as and it was my point of stake knowing that it's it's a bit early to get into any specifics. But but I I agree. I think the breadth of our portfolio and diversification is what's been, really driving our execution and expect that to continue, as we move ahead.

As I mentioned in a prior question from from Mike, significant room to expand across, our, portfolio. And you've seen really strong momentum, in livestock. Right? I mean, you saw growth in livestock in the quarter at 6%, following 56% respectively the last couple of years, and we see that momentum is continuing. So these are all elements that we are considering as we build our plans going into next year.

On margins, well, I think you saw margins have played out at least in gross margins largely as we expected coming into the year, marginally favorable as you look at the second quarter. As we said last quarter and when we gave guidance, we do see manufacturing costs being higher as we work through inventory that was built last year and that gets better as we go into the second half. That remains the case for us, and we're coming off of the second quarter where we saw that play out again slightly favorably to our to our plans. You did see us drive 10% growth in adjusted net income on the quarter, really leveraging through cost management. We'll continue to be very mindful and disciplined about how we do that while we keep investing in the long term.

I think that's really the balance that we're we continue to achieve and we've demonstrated we're able to do. And then on top of that, you saw at the EPS level, the contributions from our share buybacks. We have continuously do on a on a regular basis, consistently. And as we guide as you raise the guidance here, we continue to not include any forward buybacks in that. It's only the share count as we as we exit the current quarter.

So those are all elements that will that will play out. Nothing to note specifically in terms of how that might play out across the the the second half, I would say. But I would I would, mention in terms of top line, you are you are coming up against a very strong, third quarter for us in the versus versus last year. Just to remind you, companion animal grew 15% last year in the third quarter. The US companion animal grew 18%.

And and our assumptions, of course, as we look at the back half of this year, which is the timing of competitive insurance, particularly for derm, is largely in the fourth quarter. So you kind of have to balance those out in terms of how they play out for for the rest of the year.

We'll take our next question from Brandon Vasquez with William Blair. Please go ahead. Your line is open.

Hi, everyone. Good morning. Thanks for taking the question and congrats on the nice quarter. I'll ask two kind of upfront here. One is just to follow-up on Librella.

I'm just kind of curious, can you talk a little bit about what you're hearing on Librela? Why the slowdown? I think we've talked a lot about the positive clinical data around this. I think you even have a randomized controlled trial for Librela that actually read pretty positively against traditional oral medication. So, what are you hearing from the doctors so we can better understand what vets want to see and know in order to kind of reaccelerate the usage there?

And then, the follow-up question I'll ask just quickly here is, is there anything more granular, Kristin, you can give us in terms of pipeline, lifecycle innovation, anything like that, that we should expect, probably let's call it over the next twelve to eighteen months just to, give investors an idea of what kind of drivers there can be for growth? Thank you.

Thanks thanks, Brandon. I mean, look, what we continue to hear is the difference that Librela is making, you know, in the dogs that it's going into. And as we talked about a little earlier, you know, the, you know, pet owners are, you know, 70 over 75% of them are extremely or very satisfied. But, clearly, the performance of Librela has been lagging our expectations. And, you know, we've certainly faced headwinds that have really impacted patient adoption and the willingness of vets to recommend.

And what, you know, vets are saying is, can you empower us with better data to have those conversations? And that's why we've really been focused on the sort of vet education and importantly investing in several third party studies that will give the vets the data they need and, you know, that they feel they need to better understand the product and to really drive the accelerated adoption of the product. And that's primarily what we're we're hearing, from vets. And with regards to the pipeline, we don't have any new updates versus what we provided at JPMorgan this year. But I do wanna underscore, we are expecting, you know, a significant approval in a major market every year for the next few years.

We talked about long acting osteoarthritis pain for this year for dog and cat. We talked a lot about what we're expecting in the next twelve thirty six months. You've got approvals within that timeline for long acting CYTOPOINT as well as renal, etcetera. So we have a strong pipeline. We are expecting a major approval every year in a major major market.

So we remain very, very excited about that pipeline. And I wanna underscore that these markets we're talking about are significant markets. Renal is a 3 to $4,000,000,000 market. We talked about oncology, over $1,500,000,000 market, even cardiology. So these are new markets really where very few products exist today.

In renal, actually, there really are no products other than palliative care. And I think what we continue to demonstrate is our ability to identify opportunities and and unmet needs and then deliver new markets. And so we're really excited about that pipeline.

We'll take our next question from David Westenberg with Piper Sandler. Please go ahead. Your line is open.

Hi. Thanks for taking the question. So with just increased competition in oral dermatology, are there any strategies that are actively leverage and promote Cytopoint, the injectable alternative in order to maintain and potentially grow market share in the overall dermatology franchise? I know you've mentioned about these under medicalized pets. I mean, is there an opportunity with CytoPoint to kind of go after these and highlight the differentiated benefits of that?

And then can you just remind us what the growth rate of CytoPoint is versus the orals? And specifically, you seen any slowdown in biologics or injectables as a category? And then for my second question, I just wanted to get a clarification on the contract manufacturing human health. There's a big step up there. Is that something just one time, or is that something that's gonna occur? Thank you.

Sure. I'll I'll start on the derm and let let me build on that and then move to your, question on contract manufacturing. I first wanna underscore that, you know, we have, you know, three unique offerings in this space, and we believe all three, to be honest with you, remain highly differentiated. You know, if you look at Apoquel, I don't think you would, you know, really underestimate the importance of over ten years of safety and efficacy data on that product. As you think about, you know, chewable, you know, that is, you know, a really convenient way, to provide, Apoquel for, you know, for pet orders.

You know, it doesn't have to be taken with food. It's incredibly palatable. It's it's not bitter. I think that remains differentiated. And, you know, side of point, we're also investing in a pipeline to support this.

So we're also as we talked about, expecting approval in the twelve to thirty six month time frame, for, Cytopoint long acting. So we're gonna continue to invest across this. All three have a unique position. You know, Cytopoint, you know, still remains, you know, a preferred solution for many vets. It provides long acting relief.

It's very convenient for many of them. It, you know, you know, eliminates the need for compliance and things like that for a lot of, pets with chronic issues. So we're gonna continue to invest behind all three because it's what we underscored. There is still more of a market to create than exists today. And so we're really focused on growing that market and growing adoption of all of our products, which we believe remain differentiated even in the current landscape.

I don't know if there's anything you wanna build on that, Wetteny, on derm and take take his follow-up.

Sure. Look. The the only thing I would I would mention is we do talk about the 20,000,000, that are either undertreated or not treated at all. By the way, we are speaking of medicalized dogs here. So this is an addressable market that's out there for us to continue to penetrate.

The point is this is not just something we're talking about that's going to happen in the future. We have been addressing this, and we have been sort of expanding the market. We're saying we're going to continue to do that. So if you look at last year where, Durham grew 17%, the volume growth is double digits. And so that spells, that we are extending the market both in terms of new patients and compliance of both contributing to that.

So I think that's really important as we talk about what's going to continue to happen. It's not, something that has not been already underway. On contract manufacturing, it's still a relatively small number. I know it moved sort of a higher percentage here, but we're still talking very small for the company. It used to be actually a bit higher.

It's come down a bit. You saw a little bit of pickup, but nothing specific to note on that one.

We'll take our next question from Jon Block with Stifel. Please go ahead. Your line is open.

Thanks, guys. Good morning. Nice quarter. Just a couple. What was the companion animal growth in the alternate channel for the quarter, if I've got that framing correct?

And then is there a way to quantify some of the stocking, I believe, that you referenced earlier in the call? Just any details you can give there. And Chris, anything like international, Librela? I mean we're sort of familiar with the struggles or some of the issues in The U. S.

But international, it's been quieter, I think, just from like a headline perspective, yet we did see the growth rate desal in sort of flat lining, if you would, year over year. So any comments there? Thanks for the color, guys.

Yeah. I'll start with alternative channels. We have seen really strong growth here. This is one of the elements of our strategy in terms of omnichannel. What we are meeting, the pet owner where they are, this has been continuously and consistently driving growth for us, which is why, again, when we talk about what's happening in the clinic, you also have to bring that piece in.

Alternative channels are now about 22% of our, total US companion animal, and has been growing in the mid 20% range, which is what we saw in the quarter between 2530%. What you referred to in terms of the stocking was specifically within retail. So when we speak in terms of alternative channels that both retail as well as home delivery, on the retail side, we did see some stocking from a customer that is, building position to, again, continue to drive this momentum that we talked about in alternative channels, which by the way helps with compliance, which is a very big advantage going that way. That was largely, if not entirely offset, particularly when you look at derm with what we spoke of last year, which is the launch into, into distribution for aquaculture. So we talked about that being a headwind for the quarter.

In in in in actuality, it became muted, or offset by this element, so roughly around the same. So, again, no contribution there. I would say as you look at these puts and takes, whether it's this one on the retail side of China channel or China where we we did due to tariffs, see a bit of an uptick in the quarter that we talked about that'll that'll work itself out through the next couple of quarters or supply in The US for livestock, which is timing. When you put all these together, they all wash it it, themselves out, and it becomes a very straightforward quarter in terms of what you saw from us.

Yeah. And just to answer your question on Librela and international, you know, we're continuing to see really, strong information from both vets and pet owners around how Librela continues to make a significant difference in dogs' lives. I think what you saw in the quarter is some of the bleed over from some of The US headwinds. And I think our strategy to address it is, you know, really where you saw some of the slowdown within the English speaking markets where, you know, some of the social media sort of bleeds over there. But we're really focused on the same strategy you see in The US, which is providing these best, greater third party, data to really underscore, you know, the the difference it's making clinically to build their understanding and to drive and accelerate adoption.

So the strategy in international is the same as The U. S. They've got more experience, as you've seen there. We're already moved not just from severe but into moderate dogs international, and we're really focused on continuing to grow that. But most of the headwinds we saw were really more of the English speaking market than international in the quarter.

But, you know, we really remain confident in long term potential, globally for this product, certainly in international, but also in The US.

We'll take our next question from Chris Schott with JPMorgan. Please go ahead. Your line is open.

Great. Thanks so much for the questions. I just want come back to parasiticides. I think you mentioned in The U. S.

You've now moved to about 45% share in debt practices for triples. I was just curious in terms of where you think that market can go over time. So kind of what inning of the transition to these newer products are we currently? And maybe also sticking on parasiticides, it sounds like there hasn't been much of an impact from Quattro, but can you just elaborate a bit more what you're seeing competitively with that new entrant, coming this year? Thanks so much.

Sure. Chris, I'll take the call. Look, in terms of parasiticides, as we've talked about, this is really an exciting end of the market that has substantial more room to expand. As we said in January, we expect the continued move into triple combinations as you saw that increase significantly through the vet channel and clearly happening across, alternative channels as well. We expect triple combinations to double by the 2028.

So that gives you a pretty strong trajectory, which we are seeing play out both again last year and this year. And as the first mover here in The US, the largest market, we continue to be well positioned. I think you've seen it also show up in terms of puppy shares. Right? So about 60% of puppies are immediately going right onto a triple combination in addition to those that will convert over time from older therapies to triple.

So we are seeing this play out, which is why the second part of your question, in terms of what we're seeing from Quadro has been relatively, you know, small in terms of anything there. Again, given a very high growth in this in this segment as that market expands, more entrants will do more advertising, more awareness to DDC that triple combinations are the latest standard of care, will drive more traffic to the clinic where we have an advantage, and very high level of satisfaction for our products being in the market for about five years.

We'll take our next question from Steve Scala with TD Securities.

Zoetis (ZTS) Q2 2025 Earnings Call Transcript

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